PREFERENTIAL ALLOTMENT: RELATED PARTY TRANSACTION?

Introduction.

In a developing market, where businesses are still closely promoter held and concentrated, related party transactions ("RPT(s)") are inevitable. It is but natural that companies in a large business conglomerate deal with their group entities, to create synergies and enhance value. One might say it is even easier to do so within the same group, as each entity is guided by the same business principles, have similar business ethos and understanding of each other's needs, and are capable of being driven as one composite aligned economic unit.

In the Indian context, RPTs are, however, viewed with much wariness, and for good reason, as such transactions often become means of value leakage in favour of the related parties. Therefore, in relation to corporate governance with respect to such transactions, it is important to strike the right balance between regulation and self-governance.